Data out by the Commerce Department shows consumer spending was up by 1 percent in June. This beats economists' estimates of 0.70 percent. The continued trend in spending aligns with management comments from the latest earnings reports of U.S. companies.
However, Commerce Department data from May might be painting a different story. May personal consumption was up by only 0.10 percent and personal income fell by 0.10 percent. Additionally, inflation is increasing, taking a larger bite out of consumer spending. Of course, we don't yet know how much, if any, the Delta variant might impact spending.
The consumer is ~70 percent of U.S. GDP. It's the consumer that is driving growth and keeping the economy from shrinking. In fact, second-quarter GDP growth came in at an annualized 6.5 percent.
If inflation keeps rising, it might force the FED to raise interest rates far sooner than anticipated in an effort to slow the economy and inflation down. Increasing interest rates will hit the consumer, creating the desired slow down. This will mainly be due to interest rate increases in credit cards, mortgages, HELOCs, and auto loans.
Another potential issue is that consumer savings built up from pandemic-related stimulus are nearly gone. The consumer amassed around $6.4 trillion in accumulated savings at its peak, including money from stimulus checks. As of June, the BEA showed savings were down to $1.7 trillion.
Data from the St. Louis Federal Reserve showed the personal savings rate was 8.3 percent in Feb 2020. That spiked to 33.8 percent as stimulus rolled in. As of June 2021, it is down to 9.4 percent, showing the consumer has spent virtually all of its stimulus savings. This equates to a net gain in savings over the pandemic of only $300 billion.
Translate the above percentages into dollar amounts and it looks like this (in trillions):
- Feb 2020 — $1,392
- April 2020 — $6,392
- Nov 2020 — 2,293
- Jan 2021 — $3,881
- Feb 2021 — $2,470
- Mar 2021 — $5,867
- Jun 2021 — 1,696
The bumps in savings are due to the arrival of stimulus checks.
Unemployment stimulus will be ending in September. It seems the consumer is already stressed and will be hitting more headwinds. None of which bodes well for economic growth.
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